When could a nursery claim a Texas agricultural exemption for electricity used to irrigate pine trees?

Plain-English summary

STAR places a later-law alert on this 1990 letter: H.B. 268 from the 2011 Legislature added an agricultural and timber registration-number requirement effective January 1, 2012.

The nursery could claim agricultural treatment only by showing that it did more than maintain trees before sale and instead fostered their growth. The letter gave replanting into larger containers and growing seedlings in the ground to partial maturity as examples. Merely growing product for resale without the described replanting was treated as taxable commercial use.

For a qualifying agricultural operation, electricity used to irrigate trees or pump irrigation well water was exempt. If a meter served only those uses, the nursery could give the utility an exemption certificate stating the specific use.

For a mixed-use meter, more than 50% had to be used to grow products for sale. Rule 3.295(e) required an engineering study certified by a registered engineer or a person holding an engineering degree from an accredited engineering college. A qualifying certificate had to state the actual exempt percentage and carry the required seal or signatures. Previously paid qualifying tax could be requested from the utility under Rule 3.325.

What this means for you

The distinction was active agricultural growth versus taxable commercial maintenance, followed by meter-level proof. The later-law alert means the original certificate procedure should not be assumed current.

Common questions

Was all nursery electricity agricultural use? No.

What nursery activities indicated agricultural growth? Replanting into larger containers or growing seedlings in the ground to partial maturity.

What percentage was required for a mixed meter? More than 50% exempt use.

Could the nursery seek a refund of prior qualifying tax? Yes, from the utility under the stated refund procedure.

Citations and references

• Comptroller Rule 3.295(e) — predominant-use engineering study
• Comptroller Rule 3.325 — refunds
• H.B. 268, 82nd Texas Legislature (2011) — later registration-number alert effective January 1, 2012

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9009L1059D05

Original ruling text

ALERT: This document may be affected by changes to the Tax Code which was amended by H.B. 268, 82nd Reg. Legislative Session, 2011. The amendment required persons claiming a sales tax exemption for certain agricultural and timber products to apply for and provide a registration number issued by the Comptroller, effective 01/01/2012.

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, 78774

BOB BULLOCK
Comptroller September 5, 1990

Dear ***:

Thank you for your letter concerning a sales tax exemption from
electricity used to water pine trees in your nursery.

You may be able to claim an agricultural exemption if you can
show you are doing more than maintaining the trees prior to sale,
that you are fostering their growth. Examples would be replanting
the trees in bigger containers to encourage growth or growing the
trees in the ground from seedlings to partial maturity. If you
are not replanting the product, but just growing the product for
resale, this is not considered agricultural use but commercial use,
which is taxable.

If your nursery meets the qualifications of an agricultural opera-
tion, the electricity used in irrigating the trees and/or pumping
well water used in irrigation is exempt agricultural use. If all
of the electricity measured by a particular meter is used in ei-
ther or both of these ways, then you may give the electric utility
company a properly completed exemption certificate in lieu of the
tax. This certificate must state the specific use of the electri-
city; an example would be "exclusively used for irrigation of trees
that are being grown for sale in the regular course of business."

If from the meter there are other uses which are commercial use,
you may claim a predominant use exemption on utilities if over 50
percent is used to grow your products for sale. An engineering
study will enable you to determine the predominant use. The study
must be certified by a registered engineer or a person with an en-
gineering degree from an accredited engineering college. Please
see section (e) of the enclosed Rule 3.295 relating to natural gas
and electricity for the requirements of a study.

If the electricity qualifies for the predominant use exemption, a
fully completed exemption certificate and engineer's certification
can be issued to the utility company. The exemption certificate
must include a statement that reflects the actual exempt use. An
example might be, "A valid and complete study has been performed
which shows that (insert the actual exempt percentage) of the elec-
tricity is for irrigation of trees that are being grown for sale
in the regular course of business." The exemption certificate
must bear an original seal of a registered engineer or be attached
to a statement with an original signature from the owner of the
business and a person with an engineering degree from an accredit-
ed engineering college. I have enclosed a copy of an exemption
certificate for your convenience.

A refund may be claimed for tax previously paid on electricity
which qualified for exemption. The refund must be requested from
your utility company. Please see the enclosed Rule 3.325 on re-
funds and the refund procedures for further information.

This opinion is based on the facts presented. If there are addi-
tional or different facts, the opinion may change.

If you have any questions, please contact Tax Correspondence or
you may write to me at the above address. You may call toll free
1-800-252-5555, or our regular number is 512/463-4600. My exten-
sion is 3-4278.

Sincerely,
Onofre Guerra
Tax Correspondence